Is There Hope for Barnes & Noble?

As readers of my columns know, Amazon is not my favorite bookseller. It is not because Amazon doesn't offer value or quality service; it is because I fear Amazon's attempts to monopolize the book marketplace vertically, that is, everything from acquiring and publishing to selling exclusively. Right now consumers, especially ebookers, are happy with everything Amazon because the prices are lower, the selection is existentially broader, and the customer service is great (especially as Amazon is more interested in market share than profit from the book division). But will all that change should Barnes & Noble follow Borders into the "I remember when" category: I remember when there was competition and prices were low and customer service was great -- before Barnes & Noble went out of business!

Maybe I'm alone in my thinking, and maybe I'm alone in my willingness to pay a little bit more in hopes of keeping B&N and competition alive, but the demise of B&N is something I do think about. I have been thinking about it even more often with the latest revelations that B&N is thinking of spinning off its Nook business. My thoughts are now traveling along the lines of "what would you do if you were CEO of B&N?"

It is pretty clear to me that the future lies in the world of ebooks. I think that for at least the next 100 years pbooks will retain a significant place in our culture, but over those 100 years, the market share of pbooks will decline while that if ebooks will increase. This is the hurdle that B&N faces because of its brick-and-mortar (b&m) stores and publishers face as they have not yet come to grips with the reality that their growth and future lies in the ebook world.

Yet I think there is a role for the b&m store in the ebook world, and I think B&N needs to exploit this role, something that Amazon is not well-positioned to do. Thus I play "if I were CEO…."

The real value to B&N of the physical bookstores is the brand Barnes & Noble. That was really the only valuable asset of Borders when it went under. Consequently, I would look to franchise the Barnes & Noble name. Get the company out of directly owning b&m stores, and convert all current stores into employee- and/or small business owner-owned franchise stores.

As part of the franchise, require the stores to sell Nook products and B&N ebooks. But make it profitable for the franchisee to sell those ebooks. If it is to be believed that except for the heavily discounted loss-leading bestsellers, all other pbooks and ebooks can provide a decent profit, then B&N needs to offer franchisees at least 50% of the profit on an ebook in exchange for selling the ebook.

B&N showed some inventiveness with the Nook line. I grant that most of the innovation was done by others -- for example, let's give Sony the credit for the touch screen method that all of the competitors have adopted -- but B&N needs to step to the plate and lead in innovating a seamless method by which I can enter a local B&N store, decide I want to buy a particular book but as an ebook, and buy that ebook before leaving the store, giving me the book, B&N the sale, and the franchisee the sale credit. I can think of a couple of ways to accomplish this, so I'm sure the engineers that B&N hires can come up with ways to do this as well.

This idea also has benefits for publishers. If Amazon succeeds, it is the publishers who will suffer the most first. Consequently, publishers need to become creative in how they support the local indie bookstore, including any B&N franchisee. One thing they could do is offer a payment to a store in exchange for the stores displaying a pbook version on the store's shelves. There are other possibilities as well, things that can be done for a physical bookstore that cannot be done for a virtual bookstore, and that are not directly tied to a book's price, thereby avoiding having to give the same break to Amazon. Something to think about, at least.

Then there are the indie booksellers. B&N's survival is as dependant on the indie booksellers as it is on the Barnes & Noble branded bookstores. Even if not franchisees, these booksellers should be given the opportunity to participate in the ebook selling aspects. Because, as sure as the weather changes in upstate New York, if B&N neglects the indie bookseller, Amazon will not. B&N needs to follow Amazon's lead and jump into a market area quickly and first. More importantly, B&N needs to think of its market in much broader terms than it currently does.

B&N needs to focus its efforts on the Nook and ebooks; it does not need to be distracted by b&m stores. Yet it cannot abandon the b&m market altogether because it is that market, which if carefully supported and nurtured by B&N from the outside, can lead to B&N's ultimate survival and its ability to compete against Amazon.

B&N needs to focus its efforts on its brand and making people think of B&N first when it comes to book buying. I think B&N can pull this off, but only with much more creative thinking by its management than has been shown to date. B&N has unwilling allies in the indie bookstores because Amazon is a threat to all booksellers and because Amazon is very nimble in addressing marketplace needs. B&N has to convert these unwilling allies into willing allies because all their futures are intertwined.

We will know within a few short years, if not sooner, whether B&N has the wits to survive.

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Rich Adin

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8 Comments

If B&N could offer libraries eBooks for purchase that reside on a cloud and can be checked out onto any device (a la Overdrive but with ownership vs. leasing) they could win a huge part of school market. I like B&N offer to manage downloading eBooks and Nooks for school libraries, but we still are stuck with each book being on one device, a deal breaker for me.

I share your concerns on Amazon. But I’m not a fan of B&N bookstores either. I’ve mentioned before that I think B&N could help themselves by making their bookstores more like bookstores. I understand the need to drive traffic, the attempt to make it a destination store with a family friendly shopping experience. To do this they put everything and the kitchen sink in it. There is hardly room for books anymore. The footprint of these stores is immense and retail is all about sales/Sq.Ft.

So I don’t think you could franchise these things. B&N would have to be the bank, no one else would finance this business model. This would defeat the protective value you are seeking with the franchises..

Amazon has too big a leg up on everyone else. I buy books from an independent book store. I buy ebooks from Google through the independent book store. My Wife, Daughter, Granddaughter and 90 year old Father buy from Amazon. That’s a 20/80 split in my family and B&N isn’t even in the mix. I’ll be happy if a few independent bookstores can be saved. I think B&N retail stores are doomed.

* Get together with others such as Kobo and Overdrive and agree to implement the ePub standard consistently so that publishers only have to create one version. * Also agree to sell DRM-free ebooks so that each device that can handle ebooks has a wide range of places to buy from. So even if a book isn’t available from a favoured store it can still be purchased elsewhere. * Sell ebooks in mobi (Kindle) format as well as ePub. * Provide much better sales data to the publishers than Amazon does, ideally in some consistent, standardised format and more often than once per month. Amazon’s reporting is limited and difficult to understand. One might almost believe that they are deliberately obfuscating the information. * Allow publishers to change recommended prices quickly and easily so that newpricing models can be developed (such as those suggested by Seth Godin). Or have B&N implement these in a manner that publishers can easily plug in to.

As a former Nook owner, this is precisely the reasons that led me to switch to the Kindle Fire.

In December 2011, BN shuddered several stores across the country, middle of the night, doors closed type stuff. This did not instill trust in me, and left me wondering if they closed stores that fast, they probably would do the same with the Nook.

I think paper books are going to be basically gone in 20 years. Children’s books and art books may hang on a bit longer, but your average novel, textbook, or non-fiction book is going to be an ebook or a print on demand book.

What is supposed to be its past – those dinosaur like physical stores – is the only profitable part of its business. Nook is the future, the growing part of its online operations, but also a giant fiscal black hole which shows no evidence of actually turning a dollar profit anytime soon.

B&N has to turn its online division around, otherwise it is doomed. Nothing you have presented here seem likely to do the trick.